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Why the government is set to break its own budget rules for the second year in-a-row

Paul O’Donoghue looks at why government is going against advice from serious entities.

WHEN I SAY ‘spending rules’, you say ‘breached’!

Spending rules! Breached!

So it has gone for the government for the last two years in-a-row. 

Serious bodies such as the Central Bank and Irish Fiscal Advisory Council (IFAC) issue serious warnings about the serious consequences of spending too much public money.

The government listens, nods, and says: ‘Yeah, thanks, but no thanks.’

The rule in question is one which would limit increases in state spending to a maximum of 5% a year.

The figure of 5% was chosen because the economy was expected to grow by about 5% annually for the next few years. So by keeping spending in line with growth, theoretically the government avoids getting too loose with state funds during good times.

This year, it is expected the spending increase will come in at more than 6%. While that may not sound like much, that 1% is equal to an extra €1 billion which will have to be spent every year for the foreseeable future.

This will likely go to areas such as welfare increases and tax cuts, measures which can’t be easily undone.

The main worry from the likes of IFAC is that doing this will fuel inflation. They argue, with the Irish economy at full employment and consumer demand still high, there is no need to keep spending big.

If anything, they are pushing for the opposite. To ease off on spending to help drop demand and slow down inflation.

So, why is the government going against this advice?

Summer Statement

It lays out its reasoning in a bit more detail in the Summer Economic Statement, published earlier this week.

First off, it argued that the extra money has provided “enhanced social protection supports” as well as more public service staff.

It also said it has helped with “the rollout of key government strategies” in relation to areas like housing and healthcare, which are of huge concern to both the public and politicians who want to stay in office.

However, these are constant issues which will crop up every year, and so don’t quite explain why the government is breaking the spending rules again.

In a statement to The Journal, it indicated that its main justification is because of the effects of inflation.

“[The 5% rule] was taking into account an assumed inflation rate of around 2%,” the Department of Finance said.

“Last year, in the context of a radically different inflationary environment, the parameters were temporarily adapted for Budget 2023.

“Given that inflation is expected to remain above 2 per cent next year, the government is also adjusting its fiscal parameters for Budget 2024.”

Some more detail on the reasoning is laid out in the Summer Economic Statement.

It essentially argues that higher spending is needed to provide support for people struggling with the cost of living, such as the energy subsidies rolled out last year.

“The measures introduced sought to strike a balance between targeted supports to those struggling most in society while avoiding actions that would fuel inflationary pressures,” it said.

This sounds pretty reasonable. But critics say there are two big issues.

The first is around the sustainability of corporate tax. About €12 billion in corporate tax this year is a ‘windfall’ – which is to say, it’s not something which policymakers can be sure will last.

Without this, the state would have recorded a deficit last year, and the public finances would be in a much shakier place.

The worry is that the reliance on corporate tax now is similar to a modern-day equivalent to the importance of stamp duty during the Celtic Tiger, which left a massive hole in the state’s balance sheets after the housing collapse.

But the bigger concern from entities like IFAC is around inflation.

Full employment

Michael McMahon, the organisation’s acting chair, said the government’s decision to keep spending could actually be harmful in the long run if it causes inflation to linger.

“Unemployment is at historic lows, and it’s not a sensible time to be adding extra demand to the economy,” he told The Journal.

“If you were to give everyone an extra €1,000, particularly if that money is generated from multinationals with activities outside of Ireland who are booking taxes here, we create extra demand without extra supply. Think of it like houses, what happens if you give all house buyers an extra €10,000 – prices go up.”

However, the Department of Finance argued the extra €1 billion in spending is needed.

“This balances improvements in public services and investment in critical infrastructure while ensuring that budgetary policy does not become part of the inflation problem,” it said in its statement to The Journal.

But bodies such as IFAC and the Central Bank are not so sure. As well as feeding inflation, they also argue that higher spending basically undoes the work the European Central Bank is trying to do by raising interest rates.

The point of raising interest rates is to make borrowing more expensive, causing people to spend less money and leading to a reduction in prices.

But if the government is giving people extra money at the same time as interest rates are rising, the two can interfere with each other.

“While inflation is high, the European Central Bank will keep raising interest rates,” McMahon said. 

“If the authorities in Ireland and other countries counter hikes with more spending, we’ll end up with even higher interest rates.”

Voters versus Think Tanks

No matter which way it’s sliced, the government faces a delicate balancing act. 

Resisting calls for increased spending will prove almost impossible with corporate taxes flowing in at the same time as a massive chunk of the population is grappling with a cost of living crisis.

At the same time, the higher spending risks undoing counteracting interest rate hikes and overheating the economy.

But with think tanks on one side, and voters on the other, only one winner looks likely.

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23 Comments
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    Mute Matt D
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    Dec 21st 2023, 8:21 PM

    CAMHS are a bad joke. Absolutely disgraceful carry on. My wife & i have had countless dealings with them & they have contradicted us at every turn. Until the HSE as an entity deals with staff retention & staff turnover then it will only get worse. The hiring freeze only makes it worse.

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    Mute Peter Davenport
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    Dec 21st 2023, 10:24 PM

    @Matt D: HSE is more concerned about vapes and the price of a can of beer, anything to get away from the real issues

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    Mute Boris Blank
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    Dec 21st 2023, 10:27 PM

    @Peter Davenport: that’s true, Peter

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    Mute F Fitzgerald
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    Dec 22nd 2023, 12:17 PM

    @Peter Davenport: and yet VAT is high on those products. You would wonder where all the taxes go? It’s bleak to see so many children struggling when they know they need help, are desperately asking for help, and timely help.

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    Mute Nickb
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    Dec 21st 2023, 8:35 PM

    From lunchtime tomorrow until the first week in January the vast majority of the HSE services are on holiday!

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    Mute Matt D
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    Dec 21st 2023, 8:36 PM

    @Nickb: yes, am absolutely dreading it.

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    Mute Mary Conneely
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    Dec 21st 2023, 10:00 PM

    @Nickb: incorrect. The vast majority of admin are off but clinical staff are working.

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    Mute Temp Stuff
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    Dec 22nd 2023, 8:08 AM

    @Nickb: why don’t you train and get a clinical job with the HSE ? It’s not for the faint hearted let me tell you in this day and age

    15
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    Mute SerotoninWars
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    Dec 21st 2023, 8:53 PM

    Tricky had an album called Pre-Millennium Tension which featured a classic track called ‘Makes me Wanna Die’. This popped into my head while reading this article. On one level it’s a small reminder once again that these things aren’t new but equally it’s hard to avoid the feeling that we’re a far more anxious lot than we previously were.

    We all know the culprits. We’re absolutely bombarded 24/7 by information, people at loggerheads, uncertainty and people trying to sell us either a product or a lifestyle. So much of modern life is there to make you feel unhappy, unsafe and unsatisfied with your lot. I can’t imagine what it’s like for kids now. Many have more materially and certainly technology wise but if we as adults can’t put our phones down, what hope do they have? Navigating this environment with autism must be incredibly overwhelming.

    I had less for sure than many do now but I wouldn’t swap those moments or hours of being able to switch off, daydream and think. The genie is out of the bottle and little can be done unless you go full on draconian. The upshot is that we’re going to see a different type of adult in the not too distant future. It’s like being tied to a fruit machine and not expecting psychological consequences.

    Hope this kid and her family get the help they deserve.

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    Mute Martin Mongan
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    Dec 21st 2023, 8:57 PM

    Mental health has always been an absolute disgrace anyway. If it wasn’t for groups like pieta house and sosad things would be even more dire.

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    Mute Dissasociated Follower
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    Dec 21st 2023, 10:59 PM

    @Martin Mongan: It’s no wonder kids are having “suicidal ideations” with every other week at school being suicide awareness week/month. Our kids were asked at school “hands up if you or anyone you know have self harmed or had suicidal thoughts?” The following week our child who was asked this started self harming. This bombardment of suicide awareness at school is giving our children suicidal thoughts. It’s like the thing that you’re so focused on trying to avoid that it becomes a target.

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    Mute Megan Ward
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    Dec 21st 2023, 11:22 PM

    @Dissasociated Follower: What utter nonsense. No one, child or adult, who is mentally well-adjusted and happy starts self harming just because someone mentioned self-harm the week before. Children do not end up with suicidal thoughts because they’ve learned what they are.

    We had mental health awareness talks when I was in school too, it didn’t magically make any of us depressed and suicidal, but it did let us know that if we ever ended up dealing with any of these issues there is help there. The help in this country being woeful being a different story.

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    Mute Avi
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    Dec 21st 2023, 11:32 PM

    @Megan Ward: You’re just wrong. There’s a well established contagion effect when it comes to self harming and suicide especially among youth.

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    Mute Megan Ward
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    Dec 21st 2023, 11:38 PM

    @Avi: Anyone, regardless of their age, who engages in self harm or has suicidal thoughts because someone else did is not mentally well. It’s that simple. Copycatting and ‘inspiration’ is one thing, as I said no one who is happy and well-adjusted does these things simply because they heard about someone else doing it.

    I’ve dealt with young people who have engaged in these behaviours and researched issues with copycat behaviour, they were mentally ill. The comment I replied to is trying to make out that perfectly happy children will suddenly become suicidal because they’re being educated on mental health issues which is tripe, I’m sorry. Finding that there’s a name for the feelings you’ve been experiencing and that some people use self-harm as an outlet for those same feelings is not those feelings suddenly being conjured out of nowhere.

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    Mute Martin Mongan
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    Dec 21st 2023, 11:55 PM

    @Dissasociated Follower: I can’t comment on what goes on now but having been in a school were 2 people from my year killed themselves and that was long before stuff like that was ever talked about. Sosad was set up by parents of kids who had killed themselves because it was such a taboo topic and the government were doing nothing. That seems to be case still

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    Mute Dissasociated Follower
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    Dec 22nd 2023, 6:50 AM

    @Megan Ward: You are misinterpreting my comment to suit your own narrative. I didn’t say anything about well adjusted happy children. All children are susceptable to influence and teenagers are going through a range of emotions that they are inexperienced in dealing with. Most have the ability to form a resilience that allows them to cope with the emotional rollercoaster of growing up. Others are more vulnerable due to the environment they are growing up in aswell as many other reasons. These are the children who may consider suicide when it presents itself as an option. The constant bombardement of suicide and self harm awareness at school is ringing perssistantly in the ears of these more vulnerabe children.

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    Mute Steve Davis
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    Dec 22nd 2023, 7:34 AM

    @Megan Ward: You clearly have no clue about the subject. I’ve worked at the coldface of suicide prevention for 15yrs. I have also had my own suicidal teenagers. @Dissasociated Follower is 110% correct. Clealy you never had one of your own children suicidal or know much about the subject. Or are you just a teacher trying to defend the system? Please don’t commemt on such serious matters unless you are fully educated in them.

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    Mute Megan Ward
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    Dec 22nd 2023, 9:44 AM

    @Dissasociated Follower: You quite literally wrote ‘This bombardment of suicide awareness at school is giving our children suicidal thoughts’. There isn’t much room for interpretation in that, it’s quite clear what you’re saying there. Education does not make a person suicidal. Mental health issues do.

    You then say, correctly, in your reply to me that the children are vulnerable already. Whats your solution then, to help children who are dealing with mental health issues such as depression? Do nothing and hope once they don’t have a word for it or ever find out how some people deal with their depression it’ll all be ok?

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    Mute Megan Ward
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    Dec 22nd 2023, 9:50 AM

    @Steve Davis: Ah yes, parent or teacher, no one else could possibly have a clue about suicide prevention or the basics of how these things work.

    It is simply incorrect to claim that a person who is happy as Larry one day will suddenly want to die by suicide because they learned about it. There are no two ways about it.

    I’m sorry, but are you genuinely trying to claim that a happy person with no mental health issues will suddenly no longer want to live anymore and will want to kill themselves because they found out that other people commit suicide, or self-harm because they learned what it is?

    It’s utter crap and so disrespectful to people who do suffer from such ideation as if it’s something that just turns on at the drop at the hat because of a ‘trend’. Suicidal ideation is as serious as you can get and teenagers are not so fickle that they’ll be happy one day and have deep depression the next because their friend is depressed. You can’t switch it on like a lamp. It also shows a complete lack of knowledge around where illnesses like depression come from and how they develop.

    Again, it’s not just parents and teachers who deal with these issues, there are other types of adults in the world, you know.

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    Mute Megan Ward
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    Dec 22nd 2023, 9:53 AM

    @Dissasociated Follower: Btw, ‘your own narrative’ is just a buzz phrase at this point, the only ‘narrative’ I have here is that a person who is perfectly happy does not find out their friend has depression and wake up the next day depressed and wanting to die by suicide. I wouldn’t have thought that’s a controversial position given it’s simply not how mental health issues come about.

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    Mute Dissasociated Follower
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    Dec 22nd 2023, 11:15 AM

    @Megan Ward: I sincerely hope you do not work with vulnerable children as you seem to have serious difficulty understanding the basics of mental health.

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    Mute Megan Ward
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    Dec 22nd 2023, 12:14 PM

    @Dissasociated Follower: Funny, I’d say the same to you given you seem to think that young people view and claim to have mental health issues as trends. I’d ask you too what your solution is, not to educate young people on mental health issues that can affect any of us at any point in our lives? You have an issue with young people having any kind of suicide awareness and have quite literally claimed it makes them suicidal. Awareness cannot make someone suicidal who isn’t already mentally unwell. You said it yourself.

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    Mute Megan Ward
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    Dec 22nd 2023, 12:19 PM

    @Dissasociated Follower: I’m actually just going to take it that you’re doing some weird variation of trolling because you cannot seriously be simultaneously claiming that mental health education is making children not want to live and is a bad thing and then trying to tell someone else they don’t understand how mental health issues work. It’s so insulting to the teenagers you claim to have so much concern for. A child or teenager who is expressing suicidal thoughts needs to be taken seriously and needs the appropriate help, not to have people saying behind their back ‘Ah sure he’s saying it because he found out John in school self-harms’. Listen to yourself. If you want to claim I shouldn’t have anything to do with children in distress because I’m advocating taking them seriously then go ahead. Think about how that sounds though.

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    Mute Alpain Snow
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    Dec 22nd 2023, 5:56 PM

    @Dissasociated Follower: I hope you don’t work with vulnerable children because you clearly think they should not have access to information and resources that could help them .

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    Mute Tom D
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    Dec 21st 2023, 11:23 PM

    As somebody with a close family member with fairly severe ASD, I know that they can get so overwhelmed and frustrated they can hit and hurt themselves and say things out of frustration that they don’t mean. Loud noises, upcoming trips or changes and even minor arguments among family members can cause them a lot of anxiety and unease. They need to be UNDERSTOOD, not medicated.

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    Mute Alpain Snow
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    Dec 22nd 2023, 6:02 PM

    @Tom D: But what if medication can help them have less severe meltdowns, or cope with things better? People seem to have problems with medications just because they’re medications.

    The only problem I have with medications is that they’re tested on animals CRUELLY and UNNECESSARILY who get TOTTURED sometimes for YEARS OR DECADES and many of them have boiled skin, bones and tendons and or or breast milk in them.

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    Mute Sun Rise
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    Dec 21st 2023, 9:14 PM

    Will there be an article on every child CAMHS has successfully assisted?

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    Mute Dissasociated Follower
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    Dec 21st 2023, 9:25 PM

    @Sun Rise: Can you provide some examples?

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    Mute Harry 28093
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    Dec 21st 2023, 9:07 PM

    Awful, awful. They kicked the ADHD/Autism can of one of our kids down the road for years. We were deeply unimpressed. Pathetic

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    Mute F Fitzgerald
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    Dec 22nd 2023, 12:23 PM

    @Harry 28093: It’s dreadful, especially when now is the time when they might be learning skills and resilience for life. I’m glad yours have caring parents to raise this lack of support. I hate to think how bad it is for people leaving state care alone, with only online peer support to lean on.

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    Mute Peter Davenport
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    Dec 21st 2023, 11:00 PM

    The sooner that chocolate fireguard Donnelly is turfed out, the better

    42
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    Mute Sam Jordan
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    Dec 22nd 2023, 10:05 AM

    There’s nothing new here… In fact, it’s official CAMHS Policy since Sept 2023 when they published an updated document including a section on exclusions to the service.
    Both our sons have been refused help for years despite multiple referrals.
    In our final meeting with them, our son told the head psychiatrist exactly how he felt… the response was an attempt to overload the child and bring on an Autistic response, a truly dirty trick that I spotted and intervened to prevent.
    CAMHS Wexford wrote a deplorable refusal letter citing us his parents as a key issue with our sons behaviour.
    The private sector has no capacity. Again, I’ve spent years trying here for help, too.
    If your children are diagnosed ASD and have mental health issues, Ireland isn’t the place to be.

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    Mute Mark Breathnach
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    Dec 22nd 2023, 9:20 AM

    Kids are not Socialising’ playing outdoors’ etc etc ‘ instead stuck indoors watching TV ‘ gaming ‘ etc etc ‘ get them outdoors ‘ go for walks ‘ camping’ hiking ‘ all our mental health would improve vastly if we tried

    19
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    Mute Jason Ebbs
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    Dec 22nd 2023, 9:38 AM

    @Mark Breathnach: oh poor you. You think it’s that easy to treat a child on the brink living with depression, anxiety, low self esteem, etc that a camping trip with fix it. For my child’s sake I wish it was that easy to tell her to just get out and play !!

    15
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    Mute F Fitzgerald
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    Dec 22nd 2023, 12:20 PM

    @Jason Ebbs: He probably wishes he was a child again and has no clue how bad it is for teenagers now who can’t get proper counselling. They so desperately need professional help to get them past this gap.

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    Mute Alpain Snow
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    Dec 22nd 2023, 5:59 PM

    @Jason Ebbs: Actually, I don’t think that’s what they think. I think they mean if we raise children differently (in a good way) from the beginning things might turn out differently.

    Also, maybe not camping in particular, but exercise can, actually, indeed really help some people woth depression

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    Mute Dominic Leleu
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    Dec 22nd 2023, 9:31 AM

    Stop spending millions on electric hubs and immigration help, and focus on helping your own. This government has failed everyone, safe their corporation friends. The one coming up seem eager to do the same though… We need a purge on corruption, and elect people who care

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    Mute Ger Huet
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    Dec 22nd 2023, 11:17 AM

    I live in south Wexford, and my 32year old son is autistic. He behaves like a maladjusted pre-pubescent child.
    In these parts whatever HSE help is available for children disappears completely once said individual turns 17. Or so it was in our case.
    We are all at our wits end in our household.

    19
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    Mute Jason Ebbs
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    Dec 22nd 2023, 9:35 AM

    CAMHS are a disaster zone. My daughter went through them and it was next to useless. Constant letters cancelling appointments. There were times we’d be on the way and they’d ring to try and cancel the appointment. It got to the stage my daughter didn’t even want to keep going. No continuity with staff, so she was seeing different counsellors nearly each time. No set routine in the gaps between each session. It’s an absolute mess.

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    Mute Wayne Shoes
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    Dec 22nd 2023, 12:58 AM

    Let’s get John Terry to sort it out

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